Year 1 · Foundations · Macro & Economics
Microeconomics for Finance
Understand how prices, quantities, competition, costs and incentives shape company economics — and turn those ideas into better analysis of margins, pricing power, industry structure and valuation.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Explain supply, demand and market equilibrium and distinguish a movement along a curve from a shift of the curve.
02
Calculate and interpret price elasticity of demand and connect elasticity to pricing power and revenue.
03
Distinguish fixed, variable, average and marginal costs.
04
Explain why firms compare marginal revenue and marginal cost when choosing output.
05
Compare perfect competition, monopolistic competition, oligopoly and monopoly.
06
Translate microeconomic concepts into company analysis: pricing power, margins, market share, barriers to entry and operating leverage.
CONCEPT MAPFrom customer behavior to company value
Prices coordinate buyers and sellers
CORE FACTS · SAME IN EVERY MODE
A demand curve shows the quantity buyers are willing and able to purchase at different prices, holding other relevant factors constant.
A supply curve shows the quantity sellers are willing and able to offer at different prices, holding other factors constant.
Market equilibrium occurs where quantity demanded equals quantity supplied.
A change in the good's own price creates a movement along a curve; changes in income, input costs, technology, preferences or expectations can shift a curve.
BeginnerTeaching style changes, knowledge does not.
Think about concert tickets. At a very high price, fewer people want to buy. At a higher price, organizers may be more willing to release seats or add dates. The market price moves toward a point where the number of tickets buyers want matches the number sellers offer.
FORMULASimple linear equilibrium
Demand: Qd = 100 − 2P · Supply: Qs = 20 + 2P · Equilibrium: Qd = QsSet quantity demanded equal to quantity supplied and solve for price.
Worked example
100 − 2P = 20 + 2P → 80 = 4P → P = 20; then Q = 60.
PROFESSIONAL VOCABULARYEquilibrium / équilibre / equilibrium Supply shock / choc d’offre / supply shock
A market-clearing point where planned quantity demanded equals planned quantity supplied.
A change in production conditions that shifts the supply relationship.